Plus Therapeutics Inc (PSTV) 2010 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to Cytori Therapeutics fourth quarter and year end financial results conference. Just a reminder, today's call is being recorded. Before we begin we want to advise you over the course of the call, and question and answer session, forward-looking statements will be made regarding events, trends and business prospects which may affect Cytori's future operating results and financial position. Some of these risks and uncertainties are described under the risk factor section in Cytori's Securities and Exchange Commission filings, which Cytori advises you to review. Cytori assumes no responsibilities to update or revise any forward-looking statements to reflect events, trends or circumstances after the date that they are made. At this time I'd like to turn the conference over to Chris Calhoun. Please go ahead.

Great, good afternoon, and we thank you all for your participation on today's call.

In 2010 we took a number of important steps forward in the continued development of our technology and the development of our sales and marketing functions in Europe, Asia-Pacific and the United States. Some of the key milestones achieved during the year included reporting of positive outcomes from two heart studies.

We have since started a pivotal heart attack trial, and we are seeking approval in Europe for use in no option chronic ischemia patients.

We secured approval for the Celution system in breast reconstruction, reported outstanding results from our breast reconstruction trial, and successfully launched PureGraft into the US and European plastic and reconstructive surgery markets.

We grew product sales by 41% due in large part to increasing the number of revenue generating units by 48 to a cumulative total of 149 and shipping nearly 1400 consumables during the year. And we've strengthened our cash position, which was $52.7 million at the end of 2010, compared with $12.9 million at the end of 2009. This included a $10 million investment from Astellas Pharma, a leading global pharmaceutical company who's expressed an interest in a potential liver disease partnership around our technology.

With an eye toward the future, we firmly believe the cardiac market represents a very substantial opportunity for Cytori. I would like to provide a specific update on this. Our acute heart attack therapy program has advanced into a European pivotal trial targeting nearly 2 million patients who present at the hospital each year in Europe with a heart attack. The first site in our ADVANCE acute heart attack trial is up and running and enrolling. We anticipate including up to 35 sites and enrolling up to 375 patients. Enrollment is expected to complete within 18 to 24 months.

The primary end point is the reduction of infarct size at six months which is the most predictive measure for future adverse clinical outcomes, such as recurrent heart attack, hospital admission for heart failure, or patient death. Major adverse cardiac and cerebral events also known as MACE, will be followed out to 12 months. Additionally, healthcare cost effectiveness data and healthcare utilization metrics are also being collected. All of this data will be used to support reimbursement and payer strategies in Europe with this therapy, as well as the power of future US pivotal trial. Long-term data from PRECISE, our chronic myocardial ischemia trial demonstrated statistically significant improvement in heart function as measured by max VO2 and METS. Statistically significant differences between the cell treated group and the control group were observed at six months and sustained at 18 months.

It's important to note that max VO2 is a measure of overall cardiovascular fitness and is a primary metric for heart transplantation eligibility. It is also a key predictor of one-year survival and a surrogate marker for clinical outcome. Based on this data and a strong trend in survival for the treatment group we intend to submit an application in Europe to expand our CE mark to include indications for no-option chronic myocardial ischemia patients. More than 2 million of the 5.5 million heart failure patients in the G5 in Europe fit this category, we are actively preparing for this approval and we will provide much more detail as we progress through the regulatory process in Europe.

On the strength of the PRECISE data we have decided to conduct a US trial for chronic myocardial ischemia and we are currently working on pre-IDE package to submit to the FDA. We anticipate this will be a 60 to 120-patient trial and would likely begin enrolling early next year. There are a number of funding opportunities and grants that we are currently pursuing that could fund a significant portion of this trial. We will provide more information over the year as we work with the FDA to define the specific trial design, time line and budget.

From an operating standpoint, product revenues increased 41% to $8.3 million in 2010, compared to $5.8 million in 2009. This includes $2.4 million in the fourth quarter 2010 product sales. Gross profit improved to $4.3 million for 2010 compared to $2.4 million in 2009, including $1.2 million in gross profit in the fourth quarter. We anticipate that annual revenue growth will continue and should accelerate, however, it will remain lumpy quarter to quarter.

We ended the year with 149 revenue generating units compared to 101 at the start of the year, with 1392 consumables shipped in 2010 compared to 1205 shipped in 2009. This includes a record 437 consumables shipped during the fourth quarter of 2010, of which 350 were reorders. The percentage of reorders increased substantially in 2010, with 77%, compared to 64%, a positive trend that reflects the recurring revenue opportunity once a system is installed. Separately, 1847 PureGraft consumables were shipped since the mid-year launch, a sign that Cytori is penetrating the growing fat grafting market in the US and abroad and we couldn't be more pleased with the demand we're already seeing in the market for this product today.

Net cash used in operations was $23.6 million in 2010, compared to $23.8 million in 2009. This includes $4.8 million in the fourth quarter of 2010. During the year, there was a decrease in research and development expenses related to clinical trial costs, offset with, among other things, an increase in SG&A as we expanded our sales efforts worldwide. Cash, and cash equivalents, as of December 31, 2010, were $52.7 million.

All in all 2010 was a year that produced important milestones in clinical trials, product development and sales and marketing. We look forward to continuing that momentum into 2011 and beyond. I'd like to note that I'm joined today by Dr. Marc Hedrick, Mark Saad and Ken Kleinhenz. With that brief overview I'd like to open up the call for any questions.

Anthony?

Thank you.(Operator Instructions)And we'll take our first question from Miguel Nockomovitz from Rodman & Renshaw.

Hi. Good afternoon, gentlemen, thank you for taking the question. Let's maybe start on the cardiovascular study. You mentioned the study was enrolling in the Netherlands. Do you have any concrete statement there regarding the numbers that have been enrolled to date?

Hi, Miguel, it's Chris. The synergists recently got trained and brought up to speed, and so they're starting to recruit patients actively now, so the enrolling process has begun, but I don't believe the first patient's been treated. We expect the first patient to be treated any day now, and within the next week or two, we should have our first one in.

Okay, and then, if I'm permitted one follow-up, I think I'll ask one on the trial design. I'm assuming this obviously is based on the percent improvement seen in APOLLO which was the 5.1%, so with regard to the powering of the ADVANCE study, could you talk a bit about what treatment effect you would like to see with respect to infarct size, does it need to be equivalent to 5.1, better, potentially weaker? Could you talk about how that will work?

We're not going to give out the specifics, obviously, on how we powered this, but what we did is, we used the APOLLO trial is really the predicate for this, and we powered it based on those differences we saw in that trial, as you noted. We did tighten up the expected outcomes a little bit, so we gave ourselves some room in there, so it'll be a little bit less -- we're looking over the larger trial and multi-center trial for smaller effect.

Okay. And then, one more question on that study. Will you be looking at arrhythmias as secondary end points in ADVANCE?

I'm going to hand that to Marc. I believe he has the detail on the trial here.

Actually, no. Specific arrhythmias won't be looked for, however we'll be monitoring major adverse cardiac events and cerebral events, and we'll pick up arrhythmias as part of that. However, we will have a Holter monitoring at one and 12 months after they're discharged.

Okay. Thank you. I'll jump back in the queue and let other people in.

Thanks, Miguel.

And our next question will come from Steve Brozak with WBB Securities.

Hey, congratulations, gentlemen, I'll keep it to one question so that way other people can get in. Basically what we're starting to see, and a critical element that we've always talked about, is the reorder pattern. Can you give us any color in terms of what you're seeing in terms of what the practitioners are really emphasizing when they do the reorders? Any granularity there? Because not all physicians are created equal and if you can provide us any kind of color as to what you see the current interest, and what you might see into the future interests, and I'll jump right back into the queue after that.

Steve, the reorder rates and the increases in that are largely seen in the private physician practices, the esthetic practices. And it's related in part to getting a comfort level with the technology which generally takes about six months because physicians want to see that their patients are happy, and that generally takes three to six months before they can get confirmation of that in their practice. Then, in addition to driving utilization and increase reorders, its practices are learning how to market a completely new technology. As we said in the letter we talked about regenerative esthetics and how that can impact individual practices.

We developed templated marketing materials for these practices to incorporate in their communications to their existing patients and potentially new patients. They can include those in magazine ads, billboards and so forth. So training that office generally occurs in that first few months. So you really see kind of this initial period of trying out the technology and then kind of six months after start you see the practices starting to show success, and you can see that the marketing approach that we're taking, as we see, is a real multiplier on reorders.

Right. I appreciate that and look forward to seeing that continued growth. Good luck, gentlemen. Thank you.

(Operator Instructions) We'll hear next from Chad Messer with Piper Jaffray.

Yes, good evening, guys, and thanks for taking my question. I wanted to ask about, basically, if we could get a little more detail on what's going on with the regulatory path in the US. I know at one point not too long ago, I thought we were going to start some kind of IDE study here in 2011. It sounds like that's getting pushed out a little bit. Is that purely financial or, how have your interactions been with the FDA? Just any more color on that process would be appreciated.

Hi, Chad, it's Chris. I'm going to give you more of a 40,000-foot view level, and then if I don't answer your question specifically, maybe we'll come back and revisit specific things. But, based on what happened a year ago, we really decided to go back to the drawing board, and we gathered together our external experts. These include high ranking former FDA officials, obviously some external regulatory specialists and attorneys, and we really wanted to review our understanding of regulations. And after really spending a lot of time in multiple meetings with the FDA and a lot of these outside regulatory experts, we come in today more confident than ever that our regulatory strategy was right. And so what we've done is we put together a very comprehensive regulatory strategy. This includes a variety of 510(k) applications that are specific and targeted, humanitarian-use device exemption that's on-going, and an IDE PMA or multiple potential IDE PMAs as you noted in your question. So, based on this comprehensive strategy, we have a number of 510(k) applications that we'll be filing this year, and we believe more than ever, these are legal and viable in the approach, and based on the predicates that we're using and how the regulations apply to our technology. Additionally, as we always expect and anticipated, for specific claims, and ultimately to drive market adoption and reimbursement, we need data, and we'll pursue IDE PMA trials to gather that data.

Chronic ischemia is a good example. So, we completed this European safety feasibility trial, called PRECISE, and we're going to use that trial to move into bigger US trials. You might remember, PRECISE was a well-designed of the US quality, was in part co-led by a US investigator, and it's been reported at really all of the major US cardiovascular meetings. So this was really designed in the spirit of a US trial. So now we're going to repatriate that data to go into the US trial, which was the plan all along. What you see in our Acute program is actually a similar thing, that ADVANCE is designed to allow us to power for US pivotal trial when that trial is complete.

So, part of our overall strategy, and this is very consistent with, I think, other companies in the industry, is trials originally start in Europe and then they move to the US as they mature, and as they get bigger, and we're following that same thing. So I guess the opportunity is that we will see some 510(k)s activity over the year. There is a number of those that are going on, and we're not going to talk specifically about what each of those are. There is a lot of confidentiality and strategy that's employed in those. And, again, as typical in our industry, we will give the successful completion of those as milestones, and not really talk about when we filed or what particular application we're filing.

Thank you, and we'll move on to the next question, which comes from David Musket with ProMed.

Thanks, guys, I guess you just covered a lot of what I was going to ask about, so that we're going to be -- so all the soft-tissue issues are probably going to be filed as 510(k)s, can we kind of imply that from what you just said?

Hi, Dave. No, I don't think that's right. We're looking at a number of different PMA IDE applications for soft tissue, including a humanitarian use device opportunity that's ongoing. The 510(k) pathway effectively gives us tool claims, and we think that there are good predicates out there that we can follow to gain access to the US market for our tool, the Celution device, as under these tool claims. But to really get into markets like breast reconstruction or cardiac therapy, we intend to run US trials to generate the data, to gather reimbursement, and to really get the on-label claims that you need to penetrate the market.

Right. So but you didn't say -- I thought that the earlier question asked whether you were specifically going to file any IDEs for this year, and get started with any US-based trials, and I know you said you were going to work on a submission for a US-based PRECISE trial, but I didn't hear anything about what we've talked about in the past with respect to the soft-tissue issues.

Yes, in the note there's also a reference to humanitarian use device exemption, which is a soft tissue application, so that's the one that we'd likely pursue first. We're looking at a variety of other soft-tissue applications, in particular breast reconstruction, and as we have been for maybe six to nine months with FDA, we've had a number of meetings over the past year on that, and we continue to look at that and try to define what that -- what that study would really look like and how we would power it and so forth. So, we're in the process of evaluating that but we're not ready to commit to a certain time line.

Thank you, I appreciate that. I'll get back in the queue.

Great. Thanks, Dave.

Our next question will come from Jason Napodano with Zacks.

Hi guys, thanks for taking the question. Looks like you made some significant headway with PureGraft in the US. I'm just curious if you can help us with the trajectory there, and then as a follow-up, how much of the promotion is being done by Sound Surgical and where do you see that relationship heading in 2011?

Hi, Jason, it's Marc. Yes, we're very pleased with the receptivity for the PureGraft product. Getting nearly 2,000 units out in a half year, it was a great accomplishment. I think it validates the utility of the product. You asked specifically about the US. An interesting thing that we didn't fully appreciate when we launched it, is that there is a lot of interest from large hospitals. Most fat grafting procedures right now in the US are done with open systems, often using off-the-shelf technology that creates an infectious disease risk. So when we've gone to hospitals, who are potential major users of the product, and incorporated their infectious disease group and their administration, they're very receptive to bringing the product on board. So we're getting a nice mix of not only large hospital customers that are interested in the technology, pulling it through their VAT committee, but also at the private practice aesthetic level.

And then as far as the Sound Surgical relationship?

That's very nascent right now. We think that holds some promise as a force multiplier in the field, but we'll see how that goes over time, but we think that there's little downside and quite a bit of upside with that relationship.

Got you. Thank you.

And we'll hear next from James Anderson with Lantern Hill Capital.

Hello, follow-up on this soft-tissue humanitarian applications. I'm scratching my head on what a 510(k) humanitarian application would be, other than breast reconstruction. Can you just give any concept of some of the possible applications?

So to be clear, this isn't a 510(k). This is a humanitarian use device is an exemption you get for kind of rare and specialty diseases, typically that treat less than -- where the incidence rate's less than 4,000 patients per year, and you typically do a trial, but the trial is not quite as rigorous, I would say, as a full PMA IDE trial. But there are certain market restrictions that come once you have these HDE approvals. The applications could be something like facial wasting, congenital facial wasting, or Romberg's, or something along those lines.

Okay, fine. Thank you.

And we'll hear our next question from Carolyn Corner with McKnowle Lewis and Black.

Hi, guys, thanks for taking my call and my apologies, I got on a little late. Just was wondering, looks like from what I've seen and what I've heard, that you've been making a lot of progress across several indications. I was just wondering as we look out in the next year or two, you have been seeing increases in reorders, you've got a bunch of FDA filings in front of you, you have got this momentum in R&D. I was just wondering if you can outline what you think is the big catalyst for your stock if you look out the next year or two.

Hi, Carolyn, it is Marc Saad.

Hi.

There was a few things that we think would be very meaningful, and at the top of the list we think is, the pipeline where the Celution system has been invented, developed for the hospital market, particularly for some major medical indications. We talked about ischemia being -- ischemic support being a core mechanism of action for the sales that come from the device. So your poster child of ischemia is cardiovascular disease. We now have double blind placebo controlled data in two prospective trials, and in the case of the chronic trial, which was the larger of the two, we were statistically significant, and really gives us a new opportunity that we probably didn't anticipate about a year ago, which is to actually take some fairly compelling data and bring it to the European regulators to potentially expand our indication of use, to potentially include a subset of the -- or to include the chronic myocardial ischemia patient, no-option population, which is a very meaningful patient population. But while there's no guarantee, we feel like we can make a compelling argument and go to the regulators over there and try to get the device expanded. I believe that would be a very meaningful potential outcome that could drive the stock.

You saw that Astellas Pharma, which is one of the largest pharmaceutical companies in the world, made a strategic investment in us just a couple of months ago at a premium, with the stated interest to have a subsequent licensing partnership. That could be a meaningful opportunity. We get asked a lot, where's the partnering interest. We've said for a long time that there is, we see it every day, but it's not always visible to people, now it's pretty visible to people. These are some of the leading things that we think drive that major pipeline opportunity, all while the core installed base continues to chug along.

Okay. Great. And then given that you're in cardiovascular, you're also in esthetics, what do you see as your big industry conferences this year?. I saw you're going to be at the plastic surgery conference in Las Vegas. What do you see as your big ones this year?

Hi, it's Marc Hedrick. I'm not prepared to say exactly what conferences we're going to be in right now, because some of those selections are going to be based on acceptance of data and podium time to present key pieces of data such as the 12-month RESTORE data. Soon as we know that we'll make that known to you, but that's a key point of interest in terms of driving interest in the breast cancer reconstruction application.

And we'll take our next question from Brian Gagnon with Gagnon Securities.

Hi guys, can you hear me okay? Sorry, airplane. My question is around chronic ischemia/no-option issue in Europe, and you said you were preparing for the potential launch of that upon approval. What are you doing to prepare for that?

High, Brian, it's Marc Hedrick.

Hi, Marc.

So, today, what do we have? We have a CE mark on the system for tool claims. That's a good start. We've got an approved system. We've got 27-patient study out to 18 months, [statistically] significant cardiac performance data. That's done. Soon we're going to have our core cardiovascular platform device, Celution One, hopefully approved in Europe. I think that's on track. And then, very interestingly, as part of the ADVANCE study, remember, we're going to have 30-plus ADVANCE sites, so we'll have a Celution One system in their cath lab, pre positioned, if you will, not only for ADVANCE, but potentially as a device that could be used for other cardiac applications. So those are things that are there today, or very soon should be in place.

Now, if you look at 2011, Mark, and I think Chris, talked about seeking claims for no-option patients, from our notified body, that process is ongoing. When we have that, then our plan is to really focus, first, on the ADVANCE sites; there's no capital equipment issue, we have the systems there, they've already been trained, and use those as sites, to begin with. We're already beginning the market prep work in terms of identifying KOLs, beginning education, training, couple of key hires, really refining our selection in terms of catheter and delivery options so we're not limited to a very expensive potential device, but maybe have some other options as well for physicians. And then, working on things like reimbursement and payor discussions and ultimately trying to settle on initial pricing. So a lot of things that you would do at a normal launch, this will be kind of a slower launch because it overlaps with ADVANCE, but a lot of those things that are involved in doing that are already starting to be put in place.

Fantastic, guys, I'm looking forward to it. Congrats.

And we'll hear a follow-up question from Miguel Nockomovitz with Rodman & Renshaw.

All right. Thanks for taking the follow-up. Talking about the breast reconstruction, having seen the 12-month results of RESTORE-2 as well as the prior EU approval for the Celution system for breast reconstruction. Just wanted to get a sense as to what could drive the reimbursement. Clearly those two are important factors. Maybe you could start out with answering the question regarding the fraction of breast reconstructions that are actually getting reimbursed at the present time, if any, and if you've done any market research to indicate what the potential reimbursement could be, having the RESTORE-2 data in hand as well as the EU approval?

Hi, it's Marc Hedrick. Let me just make sure that we're talking about the same thing when we say reimbursement. To us, reimbursement means getting paid for the consumable and the system. What are the ways that you can get paid? There are kind of three buckets; one is leveraging existing private pay groups, or use open-coding in hospitals, and in many cases they are codes that can be used for breast reconstruction, such as the UK, as long as you can make a sound argument economically and convince administrators and so forth, and then, in certain hospitals in Europe, particularly Spain as an example of a G5 country. where you have hospital budgets and you have to make an argument to the hospital to reallocate the budget. So one way is kind of leveraging those existing buckets of money.

Another way to do it, which is really a bridging mechanism, where they -- many countries have new technology payments, and those are meant to bridge between initial launch of a technology and approval, to ultimately getting a DRG, and those are meant to fund the technology for two or three years until you have a DRG, and we're actively pursuing that in our focus markets. The third ultimately is going to private insurers which is less of an issue in Europe than it is in the US, it's 20% or less typically in most G5 countries, and then ultimately getting your DRG. And that's -- there is really a food chain there and you go from the low-hanging fruit ultimately to a DRG in most countries.

So what we're doing is we're leveraging all five of those, step-wise way, but in a focused way on the G5. In addition, we're working with our distributors and the kind of non-core markets and try to enable them to do some of the reimbursement work for us. So, are we getting so-called reimbursement or getting paid? Absolutely. We're getting paid in UK. We're getting paid in Italy. But we're still -- we haven't worked our way fully up that food chain, yet, but that's an area of incredible focus. It's relatively straightforward once you have clinical data and a good dialog with your notified body to get claims. But getting someone to pay for the consumable is really the ultimate key step.

Okay, so just as a quick follow-up, you mentioned you're getting paid, so that -- has that been the status quo for some time or did that change and become more positive following the approval in Europe?

No, I think you're thinking about it in a binary way. Don't think about it in a binary way. Europe is a very fragmented market and each country is different, and in some cases, different regions within different countries are different. So it's a slow ramp at first but you're trying to build momentum and you're trying to build self-referencing groups within Europe who will all tend to move towards -- to common agreement that this technology should be paid for, but, at this stage we're still in the process of building our case, cherry-picking reimbursement of payers when we can with a focus on the G5.

Okay, thank you very much

We'll take our next question from Joe Feshbach from Joe Feshbach Partners.

Hello. Lot of progress there. Congratulations. I wanted to see if we could get a little bit more meat on the bone on the whole regulatory process in the US, that's kind of my first topic. I don't know if I can break it down to one or two questions. But if you could tell me more about the 510(k) process, what -- maybe give us a little bit of insight into what convinced you that the FDA had it wrong and how comfortable you are with the notion that they know that now? And also the different types of options for the different 510(k) filings in the broad sense. I know you don't want to talk about the specific filings. Do those questions make sense?

Yes, hi, Joe. Thank you for the questions. I think you're really nailing on something that is something very new for us here, and that is, really over this last nine to 12 months we've been working with these outside experts to try to understand if we missed something in the regulations or we didn't understand something right, or if in fact we're really applying the regulations right to our technology. So we've been working with a variety of external sources, some of which were former high-ranking people from FDA who understand the regulations well, as well as consultants, and even a lawyer who understands the regulations very, very well. What's become crystal clear to us is that our interpretation and understanding of the regulations, the predicates that we're using, and the applications that we're pursuing, are -- they all follow the law, and that those are appropriate and absolutely the right way to approach these tool claims that we talked about earlier.

So I think what's new on the call is that there's not just one, and we had one a year ago that somewhat turned into a binary event. We believe that the review of that application was potentially incorrect, but in addition to that, there's a number of additional 510(k)s that we think are all reasonable based on existing predicates, applying our technology to them, and going in. So this is not just our opinion but now a whole group of experts that we have been working with.

And so what we've done and why it's taken a little bit of time, because we really wanted to be thoughtful about this, and so what we've done is we've put together a strategic group of applications that really build the public administrator of record here in these filings, that follow the regulations with the clear predicates that we strongly believe that, as long as FDA is following their regulations, we'll achieve 510(k)s on these applications. So, I think that's the message, you suggested by one of the questions, I don't exactly who, but there was potentially somewhat of a delay. I think it's exactly the opposite.

I think the opportunity here is that the pathway that everybody hoped on last year for a 510(k), which seemed to be closed to us, is absolutely not closed, and we've now validated that with multiple specialty outside experts, and we're aggressively going to pursue a number of these, but in parallel with our overall strategy of doing longer-term development, and getting the right data and the right claims and the right support for reimbursement for marketing specific things like cardiovascular. There is an opportunity and we think multiple opportunities here, to be in front of the FDA with 510(k)s that are, as you know, a much quicker and cleaner and shorter and less expensive pathway to getting products on the market.

Cool. And then just as a follow-up, I think you, I forget the language in your letter, but you talked about getting an approval for a lower-cost device that could be used now a -- oh, I'm sorry to be so dense here.

There's a plastic surgery opportunity.

Yes, the plastic surgery opportunity.

I'm going to let Marc talk through that a little bit. Because that is actually a fairly strategic opportunity.

If you look at the consumable growth and the reorder growth, in particular, in the consumable business, despite some of the challenges that that business had macroeconomically, and the fact that the current Celution 800 and definitely the Celution One, is a sledgehammer to kill a gnat . Having a targeted product for the aesthetic market, given the peculiarities of that market, the pricing sensitivities, the timing issues, the issues of the venue and a smaller office or OR that needs to turn over quickly, and so forth, and in some cases relatively commoditized, is really important. So, for really a couple of years we've been tweaking our current system, but also thinking longer-term, okay, what would be the disruptive product for the aesthetic market? And, with a blank sheet of paper, we've been working, our development team has been working on crafting that, and that product family would be called CellGraft, and it's a way to take the ADRC cell fraction, combine it with the patient's own fat tissue, but do it relatively quickly and relatively inexpensively compared to the other technology, and lower the buy-in, and we think that's going to help us bridge where we are today still with the early adopters, and go into the broader market. That will be a product that probably is first approved in Europe, and then, depending some of our progress with the FDA, then we'll come back to the US and to Asia.

Got it. When you -- I guess just as a third quick follow-up and then I'll jump back out, on the strategy for doing a US arm for PRECISE, can you talk a little bit about the background or the thinking that's gone into that and just put a little bit more meat on the bone about how you've thought about the timing and how that fits into the total roll-out of your cardiovascular array of solutions?

Joe, if you go back a couple of years you'll remember the strategy was that we were going to do (inaudible) feasibility trials in Europe for both acute and chronic, and designing those in such a way that we could then bring those back to the US to move forward towards more dense trials here. And that way you're not running multiple trials that are basically the same in different geographies, and having redundant costs and redundant efforts. So we're following that strategy, and based on the outcome from both the APOLLO and PRECISE, we decided to move forward in ADVANCE trials. For APOLLO it made sense to run that ADVANCE trial in Europe as an approval trial, and from that be able to power for a US pivotal trial here. So that will happen after the ADVANCE trial is done.

But for chronic, somewhat unexpectedly, even in a small trial, we really saw very dramatic improvements, and with the statistically significant improvements in some key functional metrics, as well as this trend that we're seeing in the survivability, and the fact that you've got a patient class here that really is no-option patients and effectively 20% plus are dying per year, that was kind of the right combination to go to the notified bodies and seek approval directly in Europe and we think that is a successful approach. But for the US, we also want to bring some of that data and move into more formal clinical trials here in the US to get on that clinical trial pathway. It does a couple of things; one, it gets our US time line where people can release, see and measure out what the US time line is for our cardiac clinical development, as well as it begins to get the FDA directly involved with our technology and in these trials, whereas they are aware of our European trials and we've presented them but they're not directly involved. This really gets them directly involved. It helps to get their buy-in and their guidance, so that when we go for an approval trial, they're very familiar with the technology and the company, and its safety profile, and its experience, and all of those things. So, yes, it is a very strategic decision and it's been a part of our plan for a number of years now, and we're just executing on that plan.

Great. One last quick one, I really apologize. But just getting back to this whole 510(k) and the US regulatory approval thing, if I remember correctly, you guys ended up in the Center for Biologics, and if I'm not mistaken, you're the only device that was assigned -- device-type offering that was assigned to be reviewed there. Am I right about that?

It's not exactly right. The Center for Biologics actually has a small device segment. There is not a lot of devices that go through there. But they do have some core expertise within the device world, as well. I mean, most of the stuff they do is biotech and pharmaceutical. But there is actually a device contribution there. So we're working with those device specialists in the biologic group.

Thank you. And our next question will come from David Musket with ProMed.

Sorry to beat this to death here, but clearly, now that we have kind of banged this around a bit, the strategy you had been pursuing to file IDEs in the soft tissue defect area is being at least temporarily replaced by this 510(k) strategy which has been supported by your consultants. Is that right?

I would say that what we talked about last year was that we were reviewing a variety of IDE applications. Obviously we have been building a portfolio around the breast reconstruction and soft-tissue applications, and as well as cardiovascular. So if you kind of think of a US pipeline you have those two major areas to look at. We decided that within the soft-tissue space the first trial that will likely run in the US is really related to this HDE application for this humanitarian use device application. So we've selected that as kind of the entry point for a soft-tissue portfolio, if you will.

Yes.

Now from the cardiac portfolio, obviously, we talked quite a bit today about moving our chronic ischemia trial into the US trial and that's ongoing, as well.

Yes, but so --.

It's not really a change in strategy, or a delay or a deviation in any way. I think we're trying to find the best way, cheapest way, quickest way, and the way that really gets us what we want to get into this markets.

Okay. And these 510(k)s we'll assume are without any clinical trials. Do 510(k)s require clinicals and some don't.

Some do and some don't. Our thinking about most of the 510(k)s that we're filing is that they would not require any kind of clinical work. It doesn't mean that FDA won't come back and request that. But at least for most of these I think it's probably unlikely based on not only the predicates, but also the claims and what we're really seeking. So it remains to be seen but we're not intending that these would be heavy-weight, if you will, 510(k).

Right. And just for clarity sake, you had several meetings with the FDA on this -- your general regulatory strategy for these indications, and did you see a window of opportunity in there somewhere that they gave you the feeling that there was an opening to go and pursue something different than what they had been telling you before?

No, it's really more a reflection on -- we understood the regulations and we built our 510(k) based on the regulations, and then when they came back and rejected it, I guess we had to really go back and revalidate if we understood the regulations right, if we understood the predicates and the linkage between the predicates and our device. And we consulted a number of outside groups. And I think through all of that review, we now have complete confidence that we were right about our understanding and interpretation of the regulations, and so a part of the last few months has really been putting together not just a single 510(k) or an appeal to go back in, but rather, a comprehensive strategy that allows us to, with multiple different 510(k) options, go into the -- go into the agency to get claims for our device based on these different 510(k) predicates that already exist. And now we think that after reviewing it with all of these external groups and our own internal expertise -- remember, our team here, Ken, who is here in the room has been with me about a dozen years and over those dozen years I bet we've had 20 to 25 different 510(k)s approved.

You're looking at a pretty experienced team who really understands device regulations. This was the first time we were really shot down on one and it made us kind of question that maybe we're interpreting something wrong. So now that we've really gone back and reviewed all of the regulations and brought in these experts, we understand it -- now we really understand the regulations very well, and what we've done is put together a strategy on how to apply in these specific opportunities that build the administrative record, to make sure that everything's connected, all the dots are connected, so that we gain these 510(k)s. And that's what we've been working on, so now those 510(k)s are going to start getting filed and hopefully we can announce some success over the year.

Thanks for the clarity.

Thanks, Dave.

And we'll take our next follow-up from Jason Napodano from Zacks.

Thanks for taking the follow-up. I'll ask a finance question just to keep Mark Saad on his toes. R&D ticked up each quarter in 2010 and I guess SG&A did the same every quarter, it ticked up. Any guidance in a sense of where we're looking in 2011 for expenses? Obviously you've got a lot of things going on with ADVANCE and working on things in the US. So you've got a pretty nice cash balance right now but any guidance in terms of the expenses and the cash balance looking forward?

Hi, Jason. I think expenses are going to be pretty stable overall. Behind the overall number there is internally there is a lot of moving parts, some go up; some go down. So specifically if you were to compare, let's say, R&D, R&D is about two-point, several million up slightly from Q3. It's down from Q4 last year. You know, reflecting we're winding down on the previous three trials and we're shifting over to a new trial. That is a large part of that number shift. So it is actually flat to down year-over-year. I think it is going to tick back up as we -- as we have probably over the latter part of this year in particular, as we get going on the ADVANCE trial and as we further compress some of the other wind-down costs associated with the previous three trials. So it is going to net probably increase on the R&D side.

G&A we don't see a lot of increase there if we were to look at G&A, that was pretty stable Q3 to Q4. Stable Q4 2010 compared to Q4 2009. And in spite of that, there was a pretty big increase within the number, largely on the outside consulting and professional services. You have -- no shortage of lawyers and consultants running around as you are trying to build a global company. Indicative of things that Chris was talking about, making sure we know the regulations right, are all the things trying to do to build a global company. I would say we had a higher number this year on the consulting side. I don't see that ticking up further from where it is. With the range of outcomes I think that's going to be pretty stable. Sales and marketing has been the number that has really increased year-over-year as part of building a global sales and marketing and we have a meaningful investment there. I think that is going to net pickup but I don't think dramatically, either.

So overall I think the expenses are pretty stable. Keeping in mind my intention is to answer this quickly, and that we are running the company for growth. We have a major blockbuster application that we think is out there for us, investing in that. We think that is a good idea and can add to the market cap considerably. We're investing in marketing pretty aggressively. So we're operating this company to grow dramatically over the years. We're not operating it on a bootstrap to survive and break even. If we operated for that we can run this much, much leaner, but the opportunity is to achieve some of the platform value which we think can be very meaningful. There is really very few [regenerative medicine] companies that are as bona fide as we are and have the scalability that we have. And we think the value [afforded] the company like that is extra ordinary if we can get these things done.

I appreciate it. Thank you.

Next question from Ken Arnold with Morgan Keegan.

Hi, guys, good afternoon, two quick questions. One, the patent you announced on Tuesday, the 672 patent, can you explain how that may build a moat around the business or may represent a very important milestone for you guys? And that's the first question, because somewhat voluminous in the press release but I'd like to get a little more clarity there as well. And number two, an old, old question about the thin film business application in Japan, any update on that?

I'll take the second question, first, Kenny, it's Marc Hedrick. No specific updates on the thin film business, but it's still in play. Regarding the patent, the -- let me put that patent in strategic context for a moment. We -- our strategy all along has been based on a recognition that being very, very early in the space we have an opportunity really to build a strategic patent portfolio from scratch. We recognized that. We knew that some patents would be achievable early and we knew that some patents would come late. So of the 31 patents that we have now, they're more a reflection of the earlier patents which have been those that have been relatively easy -- easier to get related to devices, and different iterations of the system, and different markets.

What this patent really represents is a shift from the early phase really to the later phase of getting patents that are more compositional in nature, method-oriented, and utility-oriented. For example, in this patent it is not limited by devices. It is not limited by how it's done. It's really in the method of -- in simplistically taking fat tissue from a patient, extracting cells by lots of different ways, and then recombining that. And that patent effectively covers that process, unlimited by these other things that were a key part of some of our earlier patents. So the plan now is to continue to get patents like that, that are more extensive in different markets, that build on our device patent portfolio, but help us to provide even further protection that tells a potential big partner, hey, don't come in, there's a really big patent portfolio that is going to be a hornet's nest, and we'll maybe disincentivize smaller competitors trying to raise money and get in the market, and hopefully improve our runway.

So in essence as these later stage patents come down the line you're really building a bigger moat in the market that you somewhat created. Is that an accurate statement?

100-plus -- 100-plus patents that are poised to go into the moat, and we think that only increases the water level.

Okay. Thanks so much. Keep up the good work.

And we'll take our next question from Miguel Nockomovitz from Rodman & Renshaw.

All right. Thanks for the second follow-up. Just following on Jason's question regarding the financial side of things, are you planning on providing any sort of sales and product sales guidance for 2011, and secondarily, could you comment on what fraction of revenue in 4Q was associated with the PureGraft launch?

Yes, the -- for Q4 I would say probably less than 1% related to PureGraft.

Okay.

So probably less than 20% of the total revenue related to PureGraft in Q4. So that's a product that's recently been introduced and is just beginning to grow. And the opportunity for PureGraft we estimate depending on the market size that it provided from the validated sources suggests 50,000 to 100,000 fat grafting procedures in the US, probably a comparable number in Europe, so you can infer what we think the overall market potential is between the two continents. So, it could be meaningful over time and it's an important strategic product for us.

As far as guidance, what we can say is that you're seeing accelerating revenue growth. You saw that from 2008 to 2009, you saw it grow mid to high 20%.You saw that in 2009 to 2010, grew that over 40%. That is in spite of the fact we have been limited to the private-pay price constrained market that the Celution system frankly was not initially intended for. In spite of that limitation you're still seeing that accelerating growth, not quarter and every quarter but full year over full year. So if we keep looking full year over full year, especially now that we're moving into the hospital-based market thanks to expanded indications, thanks to data we believe will help us support getting this consumable paid for across these countries, these are the sorts of things, plus with the potential significant upside wild card in moving into the cardiac arena, these are the types of things we think can allow for step function growth. A specific guidance is difficult to provide. But I think we are showing full year [over] full year we can get to accelerated revenue growth, particularly in the latter half of this year, I think it's the focus area. I think that's when we should get the fruits of the labors from the indication and from the data and then, like I said, with the potential upside maybe in the next year or so of hearing an answer on the cardiac side. Hopefully that's pretty descriptive.

Okay. Great. And then, in terms of the installed base I was just wondering, I think you went from 135 to 149 for 4Q. Where did you see most of those new purchases happening? Was it in Europe? Was it in Japan? What was the breakdown there, if you can give us some color?

It's Marc. So with respect to the systems, the overall distribution of systems is roughly 60% -- 60 -- roughly aesthetic, 40 medical, and the remainder kind of a mix where there are both applications or they're distributing inventory and that sort of thing. And if you look at just the device distribution for the quarter, it kind of remains within that roughly half of those or more are going into -- to more cosmetic or aesthetic settings and a smaller number are going into the more medical applications. Over time, I think I would see -- plan on seeing that trend reverse, where there are less Celution systems going into aesthetic practices, more going into the hospital market, and then with Celution One coming out in Europe, hopefully Q2, that Celution 800 product line in that hospital based market, will diminish in that market and Celution One will begin to take that over.

And in term of the geographic distribution of these systems, how does that play out?

For the last, I would say, three to four quarters the -- roughly half the systems have been gone to Europe, sort of reflective of consumables, as well, roughly speaking and I think maybe a quarter of those to the US and a quarter to Japan. That's a pretty good rule of thumb reflecting the last few quarters.

Okay, thanks for taking all the questions and thanks with the continued progress.

Thanks.

And we do have one other question and we'll take that from Joe Feshbach with Joe Feshbach Partners.

One other quick follow-up, in your letter you alluded to international opportunities including India and I know you've -- you mentioned that on the last call and there has been a good deal of (inaudible) work done there, but can you put a little bit more meat on the bone about what you're thinking about relative to not only India, but other emerging economies, South America, so on and so forth?

Joe, it's Marc Hedrick. Let me just frame that by saying that we're incredibly sensitive to being focussed as a company, and you can -- there are a lot of -- there is a lot of market opportunities there that may not -- may not pay off in the short run, but might pay off in the intermediate to long run, and there may be some that may not pay off for an awful long time. So we're trying to be very selective and strategic about the markets we go to, and perhaps more importantly, the markets we don't go into.

You brought up India. We made an internal decision that based on a variety of factors, that India could be -- could be a market that we could be successful in, in a targeted, strategic way, and could set us up potentially for near-term revenue, and also more -- much bigger intermediate and long-term revenue and profit. So based on that, in context of analyzing other markets and opportunity costs at the same time, we invested a relatively small amount of money in building a presence there. David [Oxley], our vice-president of these emerging markets, has spent a lot of time with other members of our team, putting together a short-term and longer-term plan for the Indian market. And we've really had about six months to 12 months of investment to get to where we are, but now we're seeing our first orders. From there we have the largest institutions in India who now are doing cases, and we think that if we have a similar success that we've had therapeutically in these targeted large markets in India, that we think that that can really provide near-term value. So we think India is a great targeted, relatively low-cost way to go in and get a lot of leverage relatively quickly.

There are other markets where we don't think that that's necessarily the case. Canada is potentially an important market for us. It's close by. We think it has some overlap with the US, both at the borders and both strategically in terms of cross-pollination of data. We have been working pretty closely with the Canadian authorities to get approval of our products, most particularly Celution system. We think we're making progress for that, we could have something to report related to that, hopefully soon, and open that market up. It is not a large market but it has some importance. And then, I'd just say, to finish off my rather long answer, that our approach to other emerging markets is really geared towards focus on city/states where we can enter in quickly and with relatively small amount of travel and effort we can land some significant sales, and then grow those and then lay the groundwork for the future.

Perfect. Thank you.

And there are no further questions at this time, so I will turn the conference back over to today's speakers.

Great. Thank you, all. Great questions today. And as investors, you're all an integral part in our mission to bring forward the next big movement in healthcare. That's regenerative medicine. In our enormous research, development and sales efforts are all geared toward improving patients' lives. To date, we estimate our technology has been used in thousands of procedures, yet this is just the beginning of the impact we expect to have. We thank you again, for your support, your continued interest, and for your time today on the call.

Once again, this does conclude today's conference call. We thank you all for your participation.